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Puerto Rican SMEs won’t have to pay or charge sales tax until year’s end

By on November 8, 2017

SAN JUAN – Gov. Ricardo Rosselló Nevares announced Wednesday that small and midsize enterprises, or SMEs, in Puerto Rico will be exempt from charging its customers the sales and use tax (IVU by its Spanish acronym) from Nov. 20 to Dec. 31. Nor will they pay sales and use tax on purchases they make for their inventories.

“In Puerto Rico, there are about 60,000 SMEs that make $1 million or less. Starting Nov. 20, these will be exempt from having to collect the IVU until the end of the year,” the governor said about the measure, which will require certification from the Treasury Department to receive the benefit.

Gov. Ricardo Rosselló signs an executive order while, from left, Treasury Secretary Raúl Maldonado, Senate President Thomas Rivera Schatz and House Speaker Carlos “Johnny” Méndez look on. (Courtesy)

Also, SMEs that file their IVU return for August, September, October and November will receive a 10% incentive that may be directly reimbursed or credited.

Both fiscal moves are part of three executive orders Rosselló Nevares signed Wednesday and announced from La Fortaleza along with Senate President Thomas Rivera Schatz, House Speaker Carlos “Johnny” Méndez and Treasury Secretary Raúl Maldonado.

One of the orders extends the period public employees have to use their vacation leave. The governor explained that a law required the days to be used up before the end of the year or would otherwise be lost. The new executive order extends the period during which public workers can take their vacation days to six months.

Also, an exemption will be provided from the penalty Puerto Rico residents pay when withdrawing money from their retirement plans and individual retirement accounts (IRAs). Withdrawals of up to $10,000 will not be penalized, while a preferential rate of 10% was established for withdrawals of up to $100,000.

Caribbean Business asked if the measures were discussed with the fiscal control board, to which Rosselló Nevares replied, “No, it’s an executive power,” adding “it’s a determination of the executive and it’s a rational determination.”

If the objective is economic development, the governor believes there will be consensus that it is necessary to guarantee that these establishments do not close after the onslaught of Hurricane María. “We are confident there should be no opposition to this,” he said.

What the fiscal impact of the announced measures will be on the government’s revenue projections is not known. During the fiscal board’s last public meeting, the Rosselló Nevares administration indicated an up to 53% loss in revenue is estimated for this fiscal year, which ends June 30.

Maldonado explained that this type of fiscal measure helps the tax base, and therefore government revenues, stabilize.

Regarding why the measures were established via executive order and not by legislative means, both the governor and the legislative leaders said they were in agreement with the decision and that the executive branch had their support.

“It was the fastest way to do it, by executive order,” Speaker Méndez said.

Administration officials assured that the measures will help SMEs be more competitive amid the state María left the island. However, Rosselló Nevares acknowledged that many businesses continue unable to operate due to the lack of electrical power and did not rule out extending the IVU exemption period.

To questions about whether replacing the IVU with another type of tax is being considered, the governor said “all alternatives are being explored” and that “a mechanism that benefits Puerto Rico is sought.”

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